Ethiopian Airlines’ Sweet Dreams

Ethiopian-Boeing-787-Dreamliner

VENTURES AFRICA – Africa’s booming airline industry reached another milestone on August 14, when Ethiopian Airlines took delivery of the continent’s first Boeing 787 Dreamliner. As only the third airline (after All Nippon and JAL) to operate the cutting-edge aircraft, Ethiopian continues to transform itself into a player that can compete on equal terms with some of the most prestigious carriers on earth.

The 787’s arrival is a game-changer. Made of lighter, composite materials instead of metal, the aircraft is up to 20 percent more fuel-efficient than comparable models. Since fuel typically makes up as much as a third of an airline’s total costs, Ethiopian’s newfound cost advantages will allow it to offer fares which are, in the short and medium-term, measurably cheaper than its competitors’.

More importantly, the 787 has a massive range of 14,200km – about the distance from London to Western Australia, a 20 hour non-stop flight. Equipped with this workhorse, Ethiopian can operate direct flights from Addis Ababa to almost anywhere in the world, realigning its network strategy around a Gulf-style, hub-based model. Put simply, passengers on long-haul flights may soon find themselves changing planes in Addis Ababa just as routinely as they currently do in Dubai.

With a further nine 787s on order, Ethiopian’s competitive tentacles will likely reach every major air market on earth, and – theoretically – nobody is safe from the threat of its modern, fuel-efficient, long-range fleet. This year, the airline will launch its first-ever services to Latin America, with Sao Paulo rumoured to be the debut destination. Managers intend to use Ethiopian’s Togo-based subsidiary, Asky, to feed intercontinental traffic via Addis Ababa.

If this competitive aggression and joined-up thinking sounds atypical of an African airline, that’s because it is. Unlike most African carriers, which are usually beset by debt and managed with the sole aim of satisfying the short-term interests of their cash-hungry owners, Ethiopian has long enjoyed stable and visionary management. In recent years the airline has exceeded the commercial targets set out in its 2005 strategic plan, and CEO Tewolde Gebremariam has just published another – titled Vision 2025 – which aims to increase passenger numbers by an ambitious 30 percent per year.

This culture of thinking long-term – to 2025 and beyond, not just to the next quarter’s financial results – has been the secret to Ethiopian’s success. The airline has been Africa’s most profitable carrier for more than a decade, and despite a recent dip in profits caused by the soaring fuel price, it remains in a better financial position than arch-rivals Kenya Airways and South African Airways.

As a consequence, it is unusual among state-owned African airlines for being able to raise its own debt and finance its own expansion without government cash. Its ten new 787s are paid for by a $1 billion loan guarantee from America’s Export-Import Bank, and it is currently tendering for an additional fifteen single-aisle jets to solidify its regional presence.

In a continent where airlines appear and vanish with alarming regularity, Ethiopian has survived for an astonishing 66 years – partly thanks to its quality management. But despite all its promise, Ethiopian won’t have an easy ride in the coming years.

For one thing, the Ethiopian government’s 100 percent ownership of the airline makes the whole enterprise highly susceptible to political interference and instability. The recent death of Prime Minister Meles Zenawi, the airline’s biggest cheerleader for almost 20 years, has led to some uncertainty about Ethiopia’s future leadership. One false move by the government, and the airline’s international financiers might scarper – just as they did from Ghana International, Air Malawi, Air Zimbabwe, Air Ivoire, and countless other airlines across Africa.

Another concern for Ethiopian is instability in the Horn of Africa. Unlike arch-rival Kenya Airways, whose short-haul network includes routes to economic boom-towns in neighbouring Tanzania, Rwanda and Uganda, Ethiopian’s Addis Ababa base is surrounded by failed states and political enemies. Indeed, it’s striking that the airline flies to only three of the six countries that share a border with Ethiopia. Here, the regional market – an important source of income for most airlines – is non-existent.

But the arrival of the 787s signify a determination to rebalance Ethiopian’s route network in favour of more lucrative intercontinental routes – the airline is already flying to 23 European, American and Asian destinations, up from only seven in 2002, and the trend is likely to accelerate. If managers retain their long-termism and the political landscape remains stable, there seems little reason why Ethiopia can’t become a major international transport hub, mentioned in the same breath as London, Doha or Bangkok.

For Africa as a whole, the 787’s arrival is a vote of confidence by the international financiers on whose infrastructural investments the continent still depends. Their actions have ensured that Africa has beaten the world to the acquisition of the most technologically advanced passenger aircraft ever built. Perhaps, too, the involvement of the Export-Import Bank is a vindication of US President Obama’s declared intent to improve US-Africa trade links, and hence portends great things for the financing and execution of Africa’s ongoing economic development.

 

 

 

 

 

Image via ethiosports